Interest rates stay at 0.5% for now - but nearly 40% with debts don't even know a rise is on the cards this year

Nearly 40 per cent of people in debt or struggling with their finances do not know a rise in interest rates is on the cards this year, new findings suggest.

The Bank of England announced today it has kept interest rates on hold at 0.5 per cent yet again this month - but people likely to be at the 'sharp end' of future hikes risk being unprepared for increased borrowing costs, the Money Advice Trust warns.

Analysts at IHS Global Insight said they expect interest rates to rise to 0.75 per cent at some point between May and August this year. By the end of 2017, the bank rate could stand at 1.75 per cent, while by the end of 2018 they could climb to 2.25 per cent, IHS suggests.

Under the spotlight: Bank of England governor Mark Carney

The government, financial services sector, advice agencies and services like the National Debtline face a 'huge challenge' getting people accustomed to the reality of a 'higher interest rate economy', the Money Advice Trust said.

Out of a sample of 641 callers to the National Debtline between August 2015 and January 2016, one in four were unaware that interest rates are set to rise. Of those who were aware, over three quarters said they expect to have to cut back on household spending to cope with the rise.

With interest rates staying low, the number of mortgages handed out to first-time buyers, home movers and buy-to-let landlords grew in November compared with a year earlier.

In a further sign that the housing market remains ‘robust', a total of £4.2billion-worth of home loans were advanced to first-time buyers in November 2015, marking a 14 per cent increase compared with November 2014, the Council of Mortgage Lenders said today.

Meanwhile, loans with a collective value of £6.5billion were advanced to home movers, a figure which was up by 20 per cent year-on-year.

And £3.5billion-worth of mortgages were handed out for buy-to-let purposes, showing a 45 per cent annual increase. The bulk of these were for investors wanting to re-mortgage, although within this total, £1.3billion buy-to-let loans were handed out for house purchase, marking a 30 per cent jump compared with November 2014.

The CML's figures also showed that re-mortgage lending was up by 36 per cent in November 2015 compared with a year earlier, with £4.9billion-worth of home loans handed out.

Paul Smee, director general of the CML, said: ‘As expected, mortgage lending activity eased back as the normal dip in the winter months began.

‘There was still growth across all lending types in November compared to the year earlier suggesting continued improvement. Our forecasts anticipate that gross lending will continue a slow but steady upward trajectory over the next two years.’

Speaking in Cardiff last week, Chancellor George Osborne said the UK must prepare for a rise in interest rates, adding that 'there is a discussion of how and when we begin to move out of ultra-low rates.'

In what was a watershed moment for the global economy, the US Federal Reserve voted to raise interest rates by 0.25 percentage points in America last month.

Preparing the nation: Speaking in Cardiff last week, Chancellor George Osborne said the UK must prepare for a rise in interest rates

Joanna Elson, chief executive of the Money Advice Trust, said: 'The Chancellor's warning to Britons to prepare for higher interest rates was welcome, but the evidence suggests we face a huge challenge in getting this message across.

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'This is particularly true of those with existing financial problems, who will be at the sharp end of interest rate rises when they do arrive.'

In September, the Building Societies' Association found that over half of borrowers said they think they will struggle once interest rates rise.

One in ten believed they would experience real financial problems, the BSA said.

UK interest rates have been held at 0.5 per cent since March 2009.

For mortgage-holders this has been something of a blessing. The same cannot be said for long-suffering savers.

While a rate rise is on the cards this year, developments since December indicate that this is unlikely to happen 'for some time to come', Dr Archer of IHS Global Insight suggests.

Consumer price inflation is expected to remain lower for longer than expected, while wages have failed to show significant and sustained signs of growth, Dr Archer adds.

Data published by the Office for National Statistics last month revealed that prices increased by 0.1 per cent in the year to November 2015.

IHS Global Insight has revised its GDP growth predictions for this year down to 2.2 per cent, from 2.4 per cent previously. Consumer price inflation is expected to remain below 1 per cent until the third quarter, Dr Archer said.

In December, only one of the Bank's monetary policy committee members, Ian McCafferty, voted in favour of a rate rise, and that remained the case in the latest vote today.

Cutting down spending? Three quarters of people surveyed said they expect to have to cut back on household spending to cope with a rise in interest rates, the Money Advice Trust said